Big changes are on the way regarding how millions of sole traders and landlords manage their taxes. From April 2026, digital reporting will be a requirement under Making Tax Digital for Income Tax Self-Assessment (MTD ITSA).
If you’ve not heard about the changes, you’re not alone. As a freelancer, I’ve personally received just one letter from HMRC about MTD - easily put to one side and forgotten about.
But sole traders, like me, need to act sooner rather than later.
What are the changes?
From 6 April 2026, if your combined self-employment and/or property qualifying income is more than £50,000 a year, you’ll need to keep digital records and use MTD-compatible software to send data to HMRC. This will replace the traditional Self-Assessment tax return.
Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted.
The government claims the move will “modernise the tax system”. James Murray, the Treasury minister responsible for HMRC, recently urged those ‘knowledgeable’ about MTD - such as accountants and tax advisers - to share what they know.
Who will be affected by MTD?
If you run your own business as an individual - so not through a limited company or a partnership - you’re classed as a sole trader. And if you let property as an individual (not via a limited company), your rental income could be subject to MTD. Read more about the difference between sole traders and limited companies.
Many people will be both sole traders and landlords. In this case, both the sources of gross income are added together for the purposes of working out if MTD will affect you.
If you had a gross income of £50,000 or more from self-employment and/or property in the 2024/25 tax year, you’ll need to digitally report your earnings via MTD ITSA from 6 April 2026.
The income threshold will then drop to:
- £30,000 in April 2027; and
- £20,000 in April 2028.
Fines for missed deadlines kick in from April 2026 - more on this later.
When do the digital records need to be submitted?
From April 2026, those affected by MTD will need to submit quarterly updates to HMRC. This means that every three months, you’ll report a summary of income and expenses online.
You can align quarters with either the tax year or calendar quarters. In either case the reporting deadline is on the 7 of the month after the quarter ends, as follows:
- Q1 - 6 April to 5 July (or April to June) - deadline 7 August.
- Q2 - 6 July to 5 October (or July to September) - deadline 7 November.
- Q3 - 6 October - 5 January (or October to December) - deadline 7 February.
- Q4 - 6 January - 5 April (or January to March) - deadline 7 May.
If you’re a sole trader with just one business, this means four quarterly updates per tax year. But if you also let property, you’ll need another set of quarterly reports just for that income.
By 31 January following the end of the tax year (e.g. 31 January 2028 for the 2026/27 tax year), you’ll need to file a ‘final declaration’. This replaces the current Self-Assessment tax return and confirms your total taxable income.
The declaration will pull data from your quarterly reports but may need adjustments for disallowable expenses, capital items (for example machinery and other equipment), or savings and investment returns.
What else do I need to know?
Software
All submissions must go through MTD-compatible software. But HMRC isn’t supplying this software. It’s “approved” scores of private firms instead, leaving sole traders to wade through the offerings, compare costs, and pick a software firm.
There are two main types:
- bridging software - this submits figures from spreadsheets to HMRC; and
- full accounting software - this tracks income and expenses, and calculates tax automatically.
Penalties
From April 2026 there will be penalties for non-compliance. This will work on a points-based system, with one late quarterly submission equalling one point. Once you reach four points, it’s a £200 fine. Points expire after 24 months of compliance with the rules.
Tax payment deadlines
Tax payment deadlines remain the same as they are now. This means you’ll need to make the final payment for the preceding tax year by 31 January, and payments on account by 31 July and 31 January each year, as appropriate.
Are you ready for MTD?
If you’ve stuck your head in the sand about MTD so far (or this is the first you’ve heard of it), you’re not the only one. Awareness of MTD appears to be worryingly low.
A great way to prepare for MTD is to choose some software from HMRC’s list and sign up to HMRC’s pilot now. This can help you understand the process ahead of time.
Alternatively, you can wait for April 2026 to get going. You’ll still need to sign up for MTD for Income Tax with HMRC - this won’t be automatic. If you have an accountant, they can help you with MTD, or even do everything for you. But this, inevitably, will come at a cost.
For more information, there are various guides at GOV.UK whether you’re a sole trader, landlord or accountant.
Emma Lunn is a multi-award winning Freelance Journalist. She’s written about personal finance for 20 years, with a career spanning several recessions and their consequences. Her work has appeared in The Guardian, The Mirror, The Telegraph and MoneyWeek. Emma enjoys helping people learn to manage their money well, in both the short and long term.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
